Monday, November 30, 2009
Asian Citrus - Who Is At Fault?
Just as I was touching down in HK, I learn of a recent HK listing that went totally apeshit!! The new listing was a company called Asian Citrus. It was not really a new listing more as the introduction of a dual listing, it was already listed on AIM in London, and this HK listing is more of a homecoming of sorts, led by CLSA Asia Pacific Markets. Now the funny thing was the company went for a 1 into 10 share split on 2 November 2009, and that was already reflected in its London share price. The stupid thing was that NOBODY adjust the NAV figure for the split for its HK dual listing of its shares. Prior to the share split, its NAV was RMB 37.30 per share. After the share split, the NAV per share data for its HK listing prospectus was also the same at RMB 37.30 per share.
~ 1.0 Chinese yuan / renminbi = 1.13 HKD
As there are no new issued shares in this listing, so the initial sellers must have been people who had transferred their shares from the London market, in which case they should have been well aware that the London market was trading on a post-split basis and had closed the previous day at 45.75 pence, equivalent to HK$5.89. Technically, the IPO price for HK should be HK$5.89, and it should trade at a slight premium in HK exchange owing to the fact that it will be more liquid.
If you were trading on Thursday, you will find those screens giving company information that Asian Citrus had a NAV of RMB 37.30 and not RMB 3.73. The info provider cannot be blamed as they are just inputting information from the prospectus. The company itself cannot be faulted as its the investment banking unit that collect the fees for doing this kind of work. The company may have to share some of the blame if the CFO / CEO of Asian Citrus never reviewed the document, or if the CFO / CEO was asked to signed off on the document and they actually did.
On Thursday 26 Nov, the stock had opened at a high of HK$51.25 (in the pre-market auction session) and had been falling all morning in HK. The stock was suspended at HK$19.94 at 11:57am, after registering a turnover of 12.72m shares for HK$291.06m in value, or an average HK$22.88 per share. When trading resumed on Friday, it crashed to a closing price of HK$7.10.
The listing of ASIAN CITRUS 00073.HK stock by introduction was managed by CLSA Asia-Pacific Markets. I believe all who bought or sold can get all their losses being reimbursed by CLSA, as I can see the manager of the issue being mainly fully responsible for the documentation. Of course those who lost money will want compensation, what about those who profited, will they be asked to return the gains? I think asking those to made the gains to cough back out the money will be very very hard to do. Its a willing buyer, willing seller, and if I see a willing buyer at HK$51, and I sold, the transaction is legal.
However, the buyers who bought at HK$30-HK$51 are very likely to have RELIED on the NAV figure in doing that trade. One may argue that they should have used the London last traded price as a benchmark. That is a very weak argument as that goes on to impose so many "information hurdles" on what the actions of a fair minded normal person. A normal person is likely to look at the posted or printed NAV, because many recent China linked companies have been benchmarked to its NAV, either as a slight discount to a slight premium. At RMB 37.30, it is so easy to lure a buyer to bid at HK$40 at least as most China related listing usually trade at more than its NAV.
Heads will have to roll, unfortunately. HK Exchange has been VERY SLOW to tackle the matter. CLSA, understandably, has been very quiet, maybe busy consulting or pummeling their in-house fengshui master for NOT alerting them to this major pitfall, ... so bloody close to end of the year, ... thereby fucking up all their Asia bonus plans ... (shit, I have to forfeit the deposit on the new Cayman).
p/s photo: Anjelica Lee Sin Je